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Fiat Chrysler pushes to boost margins as CEO pitches for a deal

Thu, Apr 30, 2015 - 7:51 AM

Fiat Chrysler Automobiles Chief Executive Sergio Marchionne on Wednesday made a plea for shrinking the number of players in the global auto industry as the company reported lower-than-expected first quarter results and outlined new plans to boost North American profit margins.

PHOTO: EPA

[MILAN] Fiat Chrysler Automobiles Chief Executive Sergio Marchionne on Wednesday made a plea for shrinking the number of players in the global auto industry as the company reported lower-than-expected first quarter results and outlined new plans to boost North American profit margins.

Mr Marchionne delivered a detailed presentation during a 2-1/2-hour call with analysts to argue that "largescale integrations are required" in the auto industry to sustain the heavy capital investments needed to meet demands for cleaner, safer vehicles. "The capital consumption of this industry is unsustainable,"he said.

Mr Marchionne's campaign for automakers to combine comes as the industry's global rivals face mounting costs to engineer vehicles that emit little or no carbon dioxide, and can avoid collisions using complex robotic driving systems.

Analysts say Fiat Chrysler, the seventh-largest of the global car makers, doesn't have the financial heft to compete long-term with larger rivals such as Volkswagen AG, Toyota Motor Corp, General Motors Co or Ford Motor Co. But Marchionne conceded in answer to questions that there are barriers to combining big auto companies, including unions and political leaders that view car makers as national economic champions.

If traditional automakers ignore his call, Mr Marchionne said"it's possible" he would discuss a deal with Silicon Valley companies, including Google Inc or Apple Inc, that are looking at ways to offer alternatives to traditional cars or car ownership.

Analysts have speculated Google or Apple could turn to an existing automaker or supplier to assemble vehicles as a contractor. "I have always been intrigued by the notion of having technology disruptors in the marketplace to change the paradigm," Mr Marchionne said.

PAST CALLS

Mr Marchionne has called for industry consolidation in the past, and he didn't outline specific ways in which Fiat Chrysler could participate in shrinking the number of competing global automakers.

Mr Marchionne got into a heated exchange with Bernstein analyst Max Warburton, who asked whether part of the problem is that Mr Marchionne, as head of the former Fiat S.p.A, saved the former Chrysler Group LLC from going out of business during the financial crisis. "It's incredibly naive to assume the extinction of Chrysler would have changed the behaviour" of the remaining competitors, Mr Marchionne said.

So far there has been no sign of interest from Mr Marchionne's major rivals.

FCA's latest results illustrated Mr Marchionne's problem. The company lost money in Latin America, which accounted for nearly a third of FCA's overall profits three years ago.

Fiat Chrysler boosted North American profits by 60 per cent in the quarter. But the company's 5 per cent operating margins for the first quarter lagged behind rivals General Motors Co and Ford Motor Co, which reported margins of 8.8 per cent and 6.7 per cent, respectively. Ford has targeted North American margins of 8.5 to 9.5 per cent for the year.

FCA said Wednesday it is launching a push to increase North American margins to GM and Ford's levels by 2018, starting with moves this year to increase margins to 5.5 to 6 per cent by the end of the year.

The automaker said it expected higher sales volumes would add 1 percentage point to its North American margins, and higher prices at the consumer and wholesale level would add another percentage point.

However, Fiat Chrysler's rivals have a vote in whether the company's Ram, Jeep, Dodge and Chrysler brands can make price increases stick.